PowerPoint Presentation: Dirty little start-up secret #7 OPERATIONS EATS SALES FOR BREAKFAST! http://www.flickr.com/photos/matthew_norris/
PowerPoint Presentation: too many entrepreneurs get hypnotized by growth ( volume or revenue)
PowerPoint Presentation: when what really matters is margin
PowerPoint Presentation: BUSINESS MODEL 1 Units Sold 1,000,000 Price per unit $1 Monthly Revenue 1,000,000 Monthly Cost 990,000 Monthly Profit 10,000 Profit Margin 1% BUSINESS MODEL 2 Units Sold 100,000 Price per unit $1 Monthly Revenue 100,000 Monthly Cost 50,000 Monthly Profit 50,000 Profit Margin 50% a million in revenue for a million units sold doesn’t look so sexy now, does it?
PowerPoint Presentation: so how do we maximize margin
PowerPoint Presentation: well it starts with some very basic math
PowerPoint Presentation: let's start with the formula for profit margin
PowerPoint Presentation: profit margin = profit revenue
PowerPoint Presentation: now let's do some simple algebraic substitution
PowerPoint Presentation: margin = profit revenue = ( volume x price ) – cost volume x price = revenue – cost revenue = (volume x price) – ( volume x unit cost ) volume x price Expand out profit to (r - c) Expand out revenue to (v x p) Expand out cost to (v x c)
PowerPoint Presentation: margin = = = = (volume x price) – (volume x unit cost) volume x price volume x (price – unit cost) volume x price price – unit cost price From the last slide Simplify! price price unit cost price - PowerPoint Presentation: margin = = From last slide price price unit cost price - unit cost price 1 - holy
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PowerPoint Presentation: profit margin =~ unit cost price 1 -
PowerPoint Presentation: in other words
PowerPoint Presentation: selling more units (volume), does not in itself mean your business is healthier
PowerPoint Presentation: what moves the dial is… raise price lower costs
PowerPoint Presentation: but….
PowerPoint Presentation: in most competitive markets, raising price (especially significantly) is not an option
PowerPoint Presentation: which means that
PowerPoint Presentation: the magic of margin
PowerPoint Presentation: is all done with cost per unit
PowerPoint Presentation: that’s why sales & marketing is basically illusion and hypnosis
PowerPoint Presentation: while operational management is the dirty little secret of success
PowerPoint Presentation: so how do you reduce unit cost?
PowerPoint Presentation: simple
PowerPoint Presentation: process excellence
PowerPoint Presentation: and how do you get excellent with your processes?
PowerPoint Presentation: you map out where your processes are weak or inefficient
PowerPoint Presentation: and you fix them
PowerPoint Presentation: one at a time
PowerPoint Presentation: i’d now like to share with you a tool that would be used by you and your management team
PowerPoint Presentation: to identify areas to target
PowerPoint Presentation: but
PowerPoint Presentation: due to the limitations of slideshare , you must download this deck to make the tool work
PowerPoint Presentation: please download and then view the next two slides in native power point. it’s free.
PowerPoint Presentation: here is a tiny version of what you’ll find on the next slide WARNING: you must manually use the scroll bars in order to use it
PowerPoint Presentation: Cultivate Productive Assets Produce Product / Service Distribute Product / Service Administrate Firm Operational Activities are defined as a set of business processes required to execute business strategy. Not all firms will have the same activities but they probably all have the same core of 4 and most start-ups and small companies will not be all that far off. As a small company, you won’t have time to fix everything, but you should 1) know where you stand in terms of operational maturity (by mapping out processes as is the case here, and assigning maturity ratings) and 2) have a plan as to what things you will invest in improving. For example, you might target the “red” items in the map. Or you might find that you’ll get better ROI by focusing on 4 of the yellow processes. Whatever the case, this is an example map (scroll left, right, up and down to explore) of operational processes that seem generic enough to me that they might be useful as a baseline for whatever company you are running. Activities mature and working smoothly Activities are being performed, but there are opportunities to improve efficiency and/or effectiveness Activities are not being performed, but should be Activities are not being performed, but are not relevant for our business at this time Scroll to see processes! Scroll to see more!
PowerPoint Presentation: what you need to do now
PowerPoint Presentation: is duplicate this map with processes specific to your business (I bet I nailed 86% of them though)
PowerPoint Presentation: and, as a management group activity, use color post-it notes
PowerPoint Presentation: to map out your own maturity levels
PowerPoint Presentation: then, start actioning change
PowerPoint Presentation: but remember…
PowerPoint Presentation: focus on change that moves the dial on cost per unit
PowerPoint Presentation: don’t geek out on every opportunity….
PowerPoint Presentation: good luck!
PowerPoint Presentation: and make it fun!
PowerPoint Presentation: SHARE THIS DECK & FOLLOW ME (please-oh-please-oh-please-oh-please) stay up to date with my future slideshare posts http:// www.authorstream.com/tag/selenasol https :// twitter.com/eric_tachibana http://www.linkedin.com/pub/eric-tachibana/0/33/b53
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